NVIDIA Corporation (NVDA) Bears See a Dreary Start to the New Year

NVIDIA Corporation put buying is nearing peak levels

Dec 24, 2014 at 9:22 AM
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NVIDIA Corporation (NASDAQ:NVDA) has been in a long-term uptrend, guided higher by its 10-month moving average since April 2013. More recently, the shares have rallied 23.1% since hitting their Oct. 13 low of $16.77 to trade north of the round-number $20 mark, at $20.65. In spite of this upward momentum, options traders have been upping the bearish ante in recent weeks.

Monthly Chart of NVDA Since December 2012 with 10-Month Moving Average

At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio has jumped to 1.08 from 0.46 over the past two weeks. What's more, the current ratio ranks in the 96th percentile of its annual range, meaning puts have been bought to open over calls with more rapidity just 4% of the time within the past year.

This appetite for puts was witnessed on Tuesday, with the contracts crossing the tape at a rate five times the daily average. Option bears set their sights on the February series, with buy-to-open activity detected at the 15, 16, and 17 strikes. By initiating these long puts, speculators expect NVDA to breach these levels by the close on Friday, Feb. 20, when the back-month series expires. Of course, it's also possible some of these positions were erected to act as a downside hedge.

The options market doesn't seem too confident these puts will be in the money at expiration. Delta on the February 15 strike, for example, closed last night at negative 0.047, while delta on the February 16 and 17 strikes is docked at negative 0.064 and negative 0.11, respectively.

On the fundamental front, the International Trade Commission yesterday said it is investigating patent-infringement claims made by Samsung against NVIDIA Corporation (NASDAQ:NVDA). NVDA responded by saying it "remains focused on ensuring that we receive fair compensation from Samsung for using our technology in Galaxy phones and tablets ... We look forward to the court setting this right."


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